It is called Project Reset and contractors of the resources world have reason to fear its name.

Having trimmed its capital program to better fit slimming cash flows,
BHP Billiton
has spent the opening months of the financial year saying ballooning operating costs were undermining competitiveness and things had to change.

This week, arguably the most powerful man on the supply side of the steel raw materials game,
BHP
’s group executive ferrous and coal,
Marcus Randolph
, put a name to the next part of what is a global campaign to protect and enhance his margins by forcing contractors and service providers to face the new realities of mining.

After describing the preparations in the Bowen Basin for that delicate moment in 2015 when
QR National
’s 10-year rail contracts with BHP’s coking coal joint venture, BMA, start, Randolph said: “This is not just a BMA initiative but it’s a project that’s happening BHP Billiton-wide. It is called Project Reset. The purpose is to redo the relationship with our suppliers and contractors to where we’re getting prices that are more reflective of the current markets. So prices have come off, we would expect supplier and contractor margins to have to come down."

In describing how BHP views the art of renegotiating those contracts, Randolph recalled the $700 million decision to buy back its Pilbara mining business from
Leighton
’s subsidiary HWE. “If I had to say what’s the best that we have done in iron ore in the last year or two? It has actually been the acquisition of the HWE mining fleet and taking control back of our mining."

Which brings us to Queensland and BHP’s plans to drive a better result in negotiations with QR and its emerging competitor in the Bowen Basin,
Asciano
.

The starting point is that BHP runs its own trains in the Pilbara but relies exclusively on two service providers in Queensland, one of long standing, the other a new entrant.

The complicating strand is the mature incumbent, QR National, also owns the under-rail network, a position of monopoly strength that allows the operator to extract equity-style returns for taking bond risk.

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The result, at least from BHP’s perspective, is coal producers are paying an uncompetitive price for moving their coal.

And, in comments aimed more at BHP’s contractors, Randolph said: “We are not going to be held hostage to service providers . . . the issues here are performance and cost."

My point is that trains are not the only focus of the cost management that has emerged as mission critical to BHP’s Australian coal business.

For example, BHP uses Leighton and Downer EDI to run the pre-strip of both its coking coal and thermal operations. Retaining that business is going to cost.

Meanwhile, to deliver additional competitive tension to the emerging mix of the Queensland coal freight business, Randolph confirmed BHP would build its own rail fleet there. The aim is to own 15 per cent of the capacity linking mine to BHP-owned ports on Queensland’s coast.

“What we are effectively doing is, because the great majority of our rail contracts roll over in fiscal year ’15, we’re creating another way of ensuring that we have competition in that basin," Randolph said.

He said the ambition was to put “a ceiling on what we expect to pay for rail transport to get the coal from our operations to our port".

“This is a business where infrastructure matters. Having our own rail system, operating it in your own port system is a hell of a strategic advantage.

“We don’t have a strategic imperative to transport 50 per cent or 75 per cent or 100 per cent of our own material. What we do have is a strategic imperative to transport enough of it that as we compare our options it is always viable that we could do it ourselves."

Interestingly, no mention was made of past plans for BMA to build its 60mtpa rail line to Abbot Point.

A fact sheet on the BHP website says construction of the link that would be used by both its coal joint ventures, BMA and BMC, was slated to start late next year, with trains running by 2015-16.

Now, given neither the metcoal or thermal coal businesses are expected to secure big licks of capex any time soon it would seem likely that effort is, at best, on hold.

BHP’s decision, meanwhile, to sell its one-third share of a long-gestating alumina project in Guinea underscores the Global Australian’s negativity about frontier investment destinations and could be fuel for further tension in the simmering debate between miners and investors over capital allocation.

Having invested $US260 million or so on developing its Guinean foothold, BHP sold it for $US1.

On Thursday BHP’s biggest shareholder, BlackRock, published a neat little piece of research and advice called “Metals Challenges and Opportunities". At the back of a document that was largely positive for the miners in that it describes an investment world that seems to have overreacted to China’s slowdown, BlackRock reignited its campaign for a re-balancing of capital allocation in the resources sector.

Mind you, on this issue, BHP and BlackRock seem to be far more aligned than, say, Rio Tinto.

Put bluntly, BlackRock reckons shareholders sit too far down the pecking order in the distribution of the wealth generated by mining.

Critically, it also questions the risk return metrics of the growth of investment in greenfields projects, particular those in “unstable countries with little infrastructure".

Need we note Rio is one of the sector’s leaders in tackling these frontier destinations.

“Our bottom line: mining is not about discovering desposits and developing them. It is about extracting commodities at a profit (in a socially and environmentally responsible way)," the BlackRock team noted. “Miners, however, often believe that the former is true. Miners must have the backbone to stand up to short-term pressures and invest of the long term.

“Depleting assets are the very nature of the industry and resource-rich players will rule the roost, they believe. Like gamblers (or many investors), many miners can only remember the losers. Every miner can point to a cheap discovery that became a multibillion-dollar asset.

“Investors are sceptical. Many long-term resources investments have a chequered past of cost overruns and delays and output shortfalls. This is partly why valuations of miners have lagged the overall market."